Weekend Report: The Mythical Magical Bullish Rising Wedge...

In today's Chartology Report I would like to clear up a misconception about
rising wedges and flags. I have gotten more negative emails from folks that
assure me there is no such thing as a bullish rising wedge or flag. I'm repeatedly
told to go back to charting school to learn my lesson. These type patterns
are missed by 95% of chartists because they supposedly don't exits and if
they do exist they can't be trusted. Keeping an open mind in the stock markets
is the first lesson to learn. That means anything is possible regardless of
what is taught by the so called experts. I've been following these two types
of patterns for many years and find that are just as reliable as any another
consolidation or reversal pattern.

A bullish rising wedge or flag forms in an uptrend. Instead of pointing down
into the uptrend these type of patterns point up into the uptrend. A typical
consolidation pattern, like a bullish falling wedge or flag, points down in
an uptrend which everybody sees and is accepted as the norm.

I have found out through many years of following these bullish or bearish
wedges or flags that they tend to show up in fast moving markets. When a stock
is in a strong move up you can see series of these patterns that from one
after another until a top is reached. The opposite is true in a downtrend
where you can have a series of bearish falling wedges or flags form. They
are also like any other consolidation pattern that generally shows up as a
halfway pattern.

Lets look at a few charts that shows a very bullish move up that is made of
several bullish rising wedges or flags. PCLN is a perfect example of what
I've described above. Note the inverse H&S bottom that formed at the end
of 2011 at roughly 450 or so. Note the three red bullish rising patterns that
made up that impulse leg to the double top at 775 area. The move was so strong
that the bulls never let the correction take on the shape of a normal consolidation
pattern that forms pointing down in to the uptrend or a sideways type pattern
such as a triangle or rectangle.

APPL had a strong move up off of the 2009 crash low that went parabolic starting
at the end of 2011. Before it went parabolic there were three small consolidation
patterns that formed. The first one was a bullish rising wedge that is slopping
up into the uptrend. The second little red consolidation was your more "normal" consolidation
pattern that was a bull flag that pointed down into the uptrend channel which
most chartists would have recognized. The third little red consolidation pattern
took on the shape of a six point bullish expanding rising wedge that is pointing
up into the uptrend. The last reversal point in this pattern started the parabolic
move to the top at 700 or so.

Lets look at one more example of how these small bullish rising patterns work
in a strong uptrend. Back in 2005 the SSEC formed a nice inverse H&S bottom
that launched the parabolic run China had over the next year and a half or
so. Again you can see the two lower red consolidation pattens that formed
were pointing up into the uptrend. This is a sign of a strong market. At the
time I made a comment after the H&S top formed that something wasn't right
because China, which was the strongest market in the world, was topping out.
Note how the parabolic uptrend collapsed once the uptrend reversed down. This
is generally how parabolic moves end. Even after almost five years the SSEC
has been dead in the water unable to make new highs.

Next I would like to show you a six point bullish rising flag that formed
back in 1999 on the COMPQ. If one would have know that these type of patterns
existed he could have gotten out at almost the exact top just before the crash
took place in the tech stocks. As with alot of consolidation patterns they
tend to form at a halfway point in a rally. The chart below shows how I measured
this bullish rising flag as a halfway pattern. The two red rectangles are
exactly the same size that measures price and time.

This next chart for the COMPQ is a long term chart that shows the bullish
rising flag that formed back in 1999, same pattern that is on the chart above.
If you look to the right hand side of the chart you can see there is a potential
red bullish rising wedge that is knocking on the door of the top rail.

Just so you don't think that these bullish rising wedges, I've shown you on
the charts above are a fluke, lets look at a beautiful bullish rising flag
that formed between 2004 to 2007 on the Dow Jones. The red arrows measures
the bullish rising flag as a halfway pattern to the infamous 2007 H&S
top that led to one of the biggest declines in US stock market history. Again
knowing what to look for would have given you a big heads up that the move
was going to exhaust itself once the price objective was met. Before we leave
this chart I would like to show you another bullish rising wedge this is now
just breaking out on the right hand side of the chart. A backtest to the top
rail, at 13,900 could happen at anytime if there is a backtest. I always like
to see a backtest to confirm a chart pattern. It doesn't happen all the time
but when it does its nice confirmation.

Gold has produced two bullish rising wedges so far during its bull market.
You can see the first one was a blue bullish rising wedge that formed back
in 2004 to 2006 time frame. The second one formed in 2010. Again you can see
that gold has been in a strong bull market, up until the last couple of years,
which is one reason we see two bullish rising wedges that point up into the
uptrend.

Silver produced two beautiful bullish rising patterns during its parabolic
move to 50. The blue bullish rising wedge formed in 2010 that launched the
first leg up of the parabolic rise. You can see the red bullish rising flag
that formed as a halfway pattern that led to the second impulse leg up. Again
knowing that these type of patterns form at roughly the halfway point gives
one a clear heads up on where to look for a top or the start of another consolidation
pattern.

Lets look at a couple of current bullish rising wedges that are forming in
the banking sectors. The first chart is the KRE which is a Regional Banking
etf. It broke out of its bullish rising wedge three weeks ago.

Lets look at one more chart that has several downwards slopping chart patterns
that has shown us how weak the HUI has been since the high made back in October
of last year. You can see the first pattern is a five point bearish falling
wedge that was a reversal pattern. The price action then went on to form a
slightly expanding bearish falling flag that has four reversal points. I know
everyone is wanting to be the first one to call the bottom in the precious
metals stocks but its been a losing battle since the October high. Chartology
101 shows a series of lower highs and lower lows all the way down. To call
a bottom has been like trying to catch a falling knife. Alot of hands have
been cut trying to call the bottom.

All the charts above are created from the old school of charting that seems
to be a dying art with all the technical indicators out there right now. I
still believe there is no better way to analyzing a chart than to watch the
price action above all other indicators. There is a place for some if the
indicators but sometimes you can get conflicting signals by watching too many
indicators. That can cause paralysis just when you need to to make a move.
I hope I've been able to show you that these patterns are legitimate and have
a spot in everyone's book of chart patterns. All the best...Rambus

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